The reason I started thinking about this is related to the housing crisis in the United States.  Many families have lost significant income during the last couple years. With 401k declines into 201k territory and income decreases, some people are getting behind on their mortgage and credit card payments.  Some have amassed huge credit card bills.  The problem of low income has started to catch up with them.  When the credit card payments are missed, the bank becomes a bit adversarial and starts raising minimum payments and jacking up interest rates.  What was a “barely manageable” situation quickly becomes impossible.

If you were to talk with a bankruptcy attorney, they would naturally suggest that you file bankruptcy to solve the problem.  But what are the other options?  Many people really don’t know.

Bankruptcy – a not so great idea.  The bankruptcy damages your credit for 7 to 10 years.

Credit Counseling – this was set up by the credit card companies to maximize their cash recovery…

Debt Resolution – a sensible solution

Why is Debt Resolution a better alternative? 

1. Reduces your unsecured debt by 60%
2. Eliminates most or all of the incessant phone calls from creditors
3. Allows you to pay off the remaining 40% balance at ZERO PERCENT (0%) interest.  Compare that to the alternatives and you’ll find that you’re paying significantly LESS money.
4. Your credit report is much less damaged using Debt Resolution than the alternatives.
5. After you’ve completed the process of Debt Resolution, you are ready for Credit Repair that can remove many if not most of the blemishes on your credit report.

If you are struggling with a mortgage that is higher than the value of your home, there is a solution you need to know about.  If you are getting behind on your mortgage payments and want to keep your home, Loan Modification is an option that might resolve the problem of a too high mortgage balance, or mortgage payments that are too high.

If Loan Modification doesn’t work for you, or you’ve decided not to keep your home, there are several things to consider. 

Foreclosure – giving the house back to the bank is not the best solution.  Foreclosure damages your credit much like a bankruptcy for 7-10 years.  You will end up with larger deficiencies with a foreclosure than you might with other options.

Deed in Lieu – voluntarily giving the house back to the bank is some better than a foreclosure, but not the best solution if other options are available.

Short Sale – the best solution…if the bank cooperates.  A short sale dings your credit for 2-4 years.  If you combine the short sale process with Credit Repair, the damage to your credit report can be minimized.

What is a short sale?

A short sale is paying the bank less than the amount of the mortgage to settle the account.  Any sale that pays the bank less than they are owed requires their agreement.  This is the part that makes some short sales difficult.  The bank is attempting to recover the maximum amount for the asset.  Sometimes the bank chooses to take a property through a full foreclosure believing they will recover more cash that way than by approving a short sale.  Remember:  the bank’s goal is to recover as much cash as possible.

Do I qualify for a short sale?

If the house has become a problem and you’re getting behind in payments…and Loan Modification doesn’t seem to be the solution for you…  You will have to work with the bank to prepare some documents to show the bank that you are having a hardship.  Making the payments is not only difficult, but has become impossible for a period of time.  This might be due to health issues, loss of a job, increased mortgage payments (due to Adjustable Rate Mortgages in many cases) or too much credit card debt that caused you to run out of resources.

Once the hardship is documented to the bank, the bank spends some time reviewing the value of your home and whether it is in the bank’s best interest to approve a short sale.

Some banks don’t cooperate

At the time of this writing, the worst bank to work with on a short sale is Bank of America / Countrywide.  If you have a mortgage with this company, you probably won’t have a successful short sale.  The rules surrounding short sales and responses of banks to short sale requests change daily so the “worst” or “best” bank to work with could be completely different when you read this.

The other major cause of banks not approving any particular short sale is their belief that the property value is higher than it really is.  A BPO (Brokers Price Opinion) or appraisal is done by the bank to determine the approximate value of the property they are reviewing.  If the estimated value of the property comes in too high, the bank might approve a short sale for a price much higher than the property will actually sell for.  For example, one property that I have personally been involved with has an approximate maximum value of $50,000.  The bank was told by the BPO agent (a Realtor hired to estimate the value of the property) that the property is “worth” $70,000.  After all the numbers are crunched, most banks would accept a price of approximately 80% (the exact percentage varies based on what kind of loan is involved, or which bank is involved) of the BPO or appraised value.  80% of $70,000 comes to $56,000.  However, if the property will not sell for more than $50,000 the bank approval to accept $56,000 is meaningless.  Nobody who is willing to pay $50,000 is going to satisfy the bank’s demand for $56,000.  The BPO or appraisal value of a short sale property is essential.  If the number comes back low enough a successful short sale can be completed in most cases.

You are not alone

Isolation exaggerates the problems that we face.  People facing difficulty often respond in denial.  Believing the problem will fix itself, we sometimes choose to do nothing at all.  In the case of a foreclosure, or exploding credit card debt doing nothing is the worst possible response.  The first step to solving the problem and moving on with your life is to acknowledge that there really is a problem.  The problem might be too many bills that wipe out all available cash resources.  For some people the problem might take another form.  An addiction to gambling might cause bills to pile up.  An addiction to almost anything can snowball out of control leaving you powerless to overcome it.  Acknowledging there is a problem is the first step.

There is help

Working with a close friend or counselor to deal with the problem can bring significant progress.  If Debt Resolution is needed as part of the process, finding a Debt Resolution expert to work with will bring help.  If the mortgage needs Loan Modification, then finding a Loan Modification expert to work with will be very helpful.  If the answer is to sell the house, then working with a Short Sale expert to sell it and move on with your life will be very helpful.  Experts are available to assist you with the problems you face.  Depression is one of the results many people struggle with when faced with an overwhelming situation.  If the problem goes on too long, the result can be a complete disconnection with reality.  Take Action today to deal with the situation you are facing.  Imagine being debt free.  No longer struggling with the particular problem you are currently facing.  Free at last.

Change your results – change your beliefs

Our beliefs bring about our actions.  For example, if you believe that you have no power to effect change in a situation, you take no action.  If on the other hand, you believe that you can make a difference, you take action based on those beliefs.  Action brings results.  Nothing happens without action.  Action is required to breathe.  Action is required to do the work we’ve been assigned.  When we believe that what we do makes a difference, our actions take on purpose.  We begin to act on purpose.  We work like we matter.  When this happens, the result of our action reflects exactly what our beliefs really are.  Changing the results – overwhelming circumstances in our lives – requires a change in our beliefs.  When we change what we believe, we see the effect in the output of our efforts.

Sometimes it is necessary to work though our beliefs with someone trained to help us.  Beliefs that we have held for a long time begin to appear normal to us.  To adjust beliefs that are off balance, we often need someone who is more objective that we can be by ourselves or with our immediate family.

Fixing the broken

It might take some time, but repairing things we have broken is essential to our recovery.  Just getting rid of too much debt does not solve the problem of how we got into debt in the first place.  Repaying our debts is necessary to achieve full restoration.  Stopping the patterns that caused the pain will lead to both progress and success in our future.  If you borrowed money from a personal friend, repay them in full.  Assuming that your friend or family member should accept a smaller amount in repayment is a bad idea.

Nothing is the same

Debt free.  Addiction free.  Beliefs changed.  Results changed.  After going through an overwhelming situation, nothing is the same.   You have grown through the situation.  You learned new things.  You discovered more accurately who you are.  You responded to things you’d rather have skipped over.  But, you survived.  Now it’s time to thrive!  Make the changes required to do things differently in the future.  Whatever it takes.

Heal the hurting

Now that you know so much more than you did before, you can help others who are going through the same struggles you yourself faced.  You understand.  You can lend a helping hand to those who are struggling.  If the thing you struggled with was debt, you know how to advise those still struggling.  You can direct them to resources that you know about.  They haven’t been down this path and are probably still dealing with denial and depression.  You are now qualified to guide others through the path you’ve traveled.

Real Estate Tip:

There are many people in the United States who are buried in debt.  The economy has made it difficult for some of these people to recover.  Many investors have lost millions of dollars in cash, investments and equity leaving their balance sheets in the red.  Net worth has suffered a great deal for some long time investors.

Debt Resolution can help you.  Loan Modification can help you.  Credit Repair can help you.

Take action.  Avoid foreclosure.  Choose a Short Sale instead. 

Use the resources you have available to have a fantastic future!  2010 is just around the corner and it’s going to be amazing!

If you have questions, please contact me.  See how I can help you.

Yes!

          

If you’ve got money in a savings account right now, check the rate of return you’re receiving for that money you have “invested” there.  Is it higher than 1% ?  I’m betting it’s even lower than 1%.  Recall the rule of 72. 

The Rule of 72

The Rule of 72 states that if you divide your interest rate into 72, the result will be the number of years it will take your money to double at that rate of return.

72 / 1% (let’s be generous) in the current savings account  = 72 years.

Many people don’t have 72 years to wait for their investment money to double in value.  Let’s check out the CD (Certificate of Deposit) rate of return that is currently being offered.  2.99% (there might be a few places you can beat 3%, but right now 3% is pretty competitive.

72 / 3% = 24 years for this rate of return to double in value.

Bank Rates of Return

The rate that banks offer is nearly always lower than the current rate available.  There are only two exceptions.  If you lock your money into a long term investment and the prime rate changes significantly during that period of time, you might beat current rates.  Back in the late 1970’s you could lock your money into a 3 year CD at 15% or a little more.  If you put your money in right before the rates dropped significantly, you would benefit from the lock and make more than you could in some other investments.  The other exception is a long term mortgage that is locked low before an inflationary period.  The bank is getting less interest because they locked the rate low.  Most of the time you won’t get a great return from the bank because the bank understands the time value of money better than you do.

Banks Don’t Make Loans

Tried to borrow money from the bank recently?  Even if you have perfect credit and solid employment history, banks just aren’t doing it like they used to.  You might be able to borrow money, but the bank will scrutinize you far more carefully and require that you jump through significantly more hoops today than they did a few years ago.  Naturally, they’re smarting from the decisions they made a few years ago and should be more careful.

Carefulness affects Rate of Return

Since the bank isn’t making loans and collecting interest on their money like they were several years ago, they can’t offer good rates on the money you have in savings and Certificates of Deposit.

Alternate Banking

During times when banks are not doing their job the way we prefer, an alternate bank becomes more prominent.  Private investing bypasses the traditional bank.  If I need to borrow funds to do a project and my banker won’t loan me money right now, I can borrow the funds from you, my private investor.  You have money sitting in an account that is earning 1-3%.  I have a project that will generate a healthy 6-10% return.  If I borrow funds from you for a Real Estate project, your investment will be protected by the equity in that Real Estate.  When the LTV (loan to value) ratio is favorable, your investment backed by a first position Mortgage or Deed of Trust keeps your investment dollars safe. 

Let’s take another look at the property I mentioned yesterday:

If you buy a property for $3,500 and repair it for $5,000 you have invested $8,500.  Next you rent the property for $500 per month.  What is your cash on cash return for this investment?

Cash flow (annualized) / Cash invested

($500 * 12) / $8,500

$6,000 / $8,500 = 70.58%

Is that better than your CD investment at the bank?

You might prefer to spend a little bit more on the property than $5,000 to get it rented.  If you do, you can still easily see that a rate of return higher than 1-3% is more than possible.  Let’s say you spent $10,000 to repair the property because $5,000 just wasn’t enough:

Cash flow (annualized) / Cash invested

($500 * 12) / $13,500

$6,000 / $13,500 = 44.44%

Is that better than your CD investment at the bank?

How many years does it take to recoup your cash investment?

72 / 44.44 = 1.62 years

Maybe you’re not too keen on owning property in Cleveland, Ohio?  Why not partner with an Investor who manages the risk and just write you a check?  Not all of the great returns are in bad areas.  Your local Real Estate Investor can provide you with opportunities that far exceed the rates your bank and retirement fund are currently offering.  If you don’t have a local investor to work with contact me.  I can help you put your investment dollars to work in either long term or short term projects that will benefit both of us.  Some projects are as short as 24 hours.  Others can be several months to several years.

Real Estate Tip:

1. Get yourself lined up with private investors who need you to help them get better returns on their investments.  If you have money sitting in a poor quality investment, consider moving it into a self directed IRA or 401K as soon as possible.  Make your money work for you.
2. After you have done a few short term transactions with your funds, consider the kinds of cash flow opportunities that are available to you through Real Estate.
3. Contact me if you have any questions.  I can help you.
4. There are many kinds of Real Estate investments.  Very short term investing can have ZERO risk if you work with an Investor who understands them.  The equity that protects your investment is a cushion that keeps your money safe.

          

Decimated Neighborhoods

Have you ever driven through a neighborhood that is decimated because of high vacancies?  It’s a scary place because empty homes draw crime.  Houses that don’t have occupants often have copper stripped out.  The water pipes are probably gone.  The air conditioner coil is probably missing.  The A frame in the furnace is also missing.  The furnace itself might be gone.  Drug houses are easy to establish when…no one lives here anymore.

Home Package

I was called today with information about a package of 100 homes for sale in the Cleveland Ohio market.  Each home is vacant and has been vacant for some time.  The houses have all been through foreclosure.  They are available for sale in the package of 100.  The price for the entire package is just slightly over $300,000.  If you do the math, each home is just over $3,000.  If you want to buy a new home for $3,000 please contact me.  I guarantee that you can’t build a house for the price of purchase and rehab.  Making each home inhabitable for rental will cost between $5,000 and $25,000.  Imagine buying a new home for less than $30,000 that originally sold for almost $100,000.

Cash Flow Properties   vs.   BANK rates of return

If you buy a property for $3,500 and repair it for $5,000 you have invested $8,500.  Next you rent the property for $500 per month.  What is your cash on cash return for this investment?

Cash flow (annualized) / Cash invested

($500 * 12) / $8,500

$6,000 / $8,500 = 70.58%

Is that better than your CD investment at the bank?

Even if the house were vacant for a couple months or had a few added expenses, your return on investment is astronomical compared to the bank.  Naturally the rate of return for each investment property depends on the numbers for that specific property.  Some properties need more than $5,000 of repairs to be rented.  The coolest thing about this kind of investment is that you don’t have to be the person responsible for renting out the properties.  Management can be hired to seriously simplify the process of collecting rents, improving the property and keeping the property occupied.  If you are interested in this kind of investment, please contact me.  I can help you manage this kind of investment.  Managing the managers and making the system work for you.

If are an investor and you partner with several other investors or even several dozen investors, you can radically change the blight of a neighborhood and make the property worth significantly more money in a fairly short period of time.  Perhaps you would prefer to own an entire neighborhood and have it managed for you.

Real Estate Tip:

Did you realize that you can radically change the quality of your 401K or IRA.  You can use your retirement money to invest in the improvement of a neighborhood.  Collecting rents inside your self-directed IRA is a great way to massively improve the returns going into your retirement.  If you don’t have a self directed IRA and want more information, I have a fantastic Self Direction recommendation for you to check out.

          

507-319-5788

FOR IMMEDIATE RELEASE

 Local Investor Causes a Stir

–Selling His House in Only 5 Days.

ROCHESTER, MN—Sep. 17, 2009—Byron Watts, a local Real Estate Investor is causing a stir in Rochester.  Tired of waiting for his house to sell the normal way, he took matters into his own hands.

“With so many houses for sale in the area, it was hard to get my house noticed.  I had to find another way to let people know about it.” 

Watts spent the past few days posting notes on over 300 homes near the 3815 5^th St NW Country Club Manor home.

“You might have seen a note on your door.  I want to make sure everyone in the neighborhood knows about this opportunity!  Everyone should come out to take a look at this great house.”

Two convenient open houses are scheduled.  Check out the house at 3815 5^th St NW Saturday afternoon from one to four and Sunday from one to four pm.  Learn more about the house and make an offer in the 5-Day Sale.

More information is available at:  www.byron.com/3815.

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